Question

On January 1, 2011, Pillar Company purchases an 80% interest in Stark Company for $890,000. On the date of acquisition, Stark has total owners’ equity of $800,000. Buildings, which have a 20-year life, are undervalued by $200,000. The remaining excess of cost over book value is attributable to goodwill. For tax purposes only, goodwill is amortized over 15 years.
On January 1, 2011, Stark sells equipment, with a net book value of $60,000, to Pillar for $100,000. The equipment has a 5-year remaining life. Straight-line depreciation is used. During 2013, Pillar sells $70,000 worth of merchandise to Stark. As a result of these inter-company sales, Stark holds beginning inventory of $40,000 and ending inventory of $30,000.
At December 31, 2013, Stark owes Pillar $8,000 from merchandise sales. Pillar has a gross profit rate of 50%. Neither company has provided for income tax. The companies qualify as an affiliated group and, thus, will file a consolidated tax return based on a 30% corporate tax rate. The original purchase is not a nontaxable exchange.
Trial balances of Pillar and Stark as of December 31, 2013, are as follows:

Required
Prepare a consolidated worksheet based on the trial balances. Include a provision for income tax, a determination and distribution of excess schedule, and income distribution schedules.